The EU statistics agency Eurostat said the eurozone expanded by 1.8% in 2018 overall, the slowest rate of growth since 2014 and significantly down from 2017's 2.3%. It is the third time Italy has fallen into recession in a decade.
Though the eurozone is performing better than in the dark days of the debt crisis, which threatened to break up the euro currency, it's still lagging the USA economy, which is projected to have grown about 3 percent in 2018.
"On a country basis, Germany and Italy have been a drag to the rest of the eurozone", said Florian Hense, an economist at Berenberg bank.
But it was watered down after European Commission objections at Italy's high public debt levels.
The government of the anti-establishment 5-Star Movement and the right-wing League has targeted GDP growth of 1 percent this year, but most independent bodies expect it to be little more than half that. It wants to provide more social security payments and to roll back a pension reform.
Italy´s Prime Minister Giuseppe Conte had anticipated the bad news on Wednesday during a business conference in Milan.More news: Mariah Carey ignores activists’ calls to boycott Saudi show
More news: Possible frost quakes recorded in Central Pennsylvania
More news: Real Madrid player ratings vs Girona: Benzema seals semi-final berth
Investors have been warily watching Italian economic performance following weeks of negotiations with the European Union over the government's budget that pushed up bond yields. Because the president's economic team receives the numbers under embargo the afternoon before the report, his optimism was a market-moving tell.
While the budget crisis that gripped Italy in the second half of 2018 seems to finally have a solution, the country's government is volatile and highly euroskeptic, so the country is teetering on the edge of yet another political crisis.
Conte, who fronts a populist coalition government that has vowed to implement a series of costly policies despite a huge national debt, said "we have no reason to lose confidence".
Italy's slump is adding concerns for the region's 2019 outlook.
The eurozone has also been hobbled by an unexpected slowdown in Germany, Europe's biggest economy, which suffered an unexpected contraction in the third quarter largely due to changes in emissions standards that snarled auto sales.
Separate economic indicators point to further weakness at the start of 2019, and most economists expect a hard period ahead if the main causes of uncertainty aren't addressed soon. "Eurozone data releases have provided a poor start to the year with growing fears of a global slowdown and sentiment continuing to plummet", Oxford Economics wrote in a Thursday note. "Uncertainty about economic developments in China, the unresolved trade conflict between the US and China and Brexit continue to weigh on the economic outlook for 2019".